SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended SEPTEMBER 30, 1994
---------------------------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from -------------- to ----------------
Commission File Number: 1-10104
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UNITED CAPITAL CORP.
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(Exact name of registrant as specified in its charter)
DELAWARE 04-2294493
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 GREAT NECK ROAD, SUITE 401, GREAT NECK, NEW YORK 11021
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(Address of principal executive offices) (Zip Code)
516-466-6464
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $.10 par value 6,068,366 shares outstanding
as of November 2, 1994.
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UNITED CAPITAL CORP. AND SUBSIDIARIES
INDEX
PAGE
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as
of September 30, 1994 and December 31, 1993 3
Consolidated Statements of Income for
the Three Months Ended September 30, 1994 and
1993 4
Consolidated Statements of Income for the
Nine Months ended September 30, 1994 and 1993 5
Consolidated Statements of Cash Flows for
the Nine Months Ended September 30, 1994 and
1993 6-7
Notes to Consolidated Financial Statements 8-13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13-20
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURES 20
Page 2 of 20
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<TABLE>
<CAPTION>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
(UNAUDITED)
ASSETS 1994 1993
- ------ ------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,821,750 $ 3,749,301
Marketable securities 805,000 1,718,277
Notes and accounts
receivable, net 21,987,547 13,681,863
Inventories 15,363,730 8,069,275
Prepaid expenses and other
current assets 1,335,642 634,056
Deferred income taxes 572,057 609,078
------------ ------------
Total current assets 41,885,726 28,461,850
------------ ------------
PROPERTY, PLANT AND
EQUIPMENT, net 13,924,916 8,913,186
REAL PROPERTY HELD FOR
RENTAL, net 72,369,559 74,392,684
NONCURRENT NOTES RECEIVABLE 7,802,249 822,541
OTHER ASSETS 3,105,299 2,030,641
DEFERRED INCOME TAXES 889,632 261,062
------------ ------------
Total assets $139,977,381 $114,881,964
============ ============
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY 1994 1993
- -------------------- ------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of
long-term debt $ 7,708,462 $ 6,414,052
Loans payable to banks 13,946,890 1,895,000
Accounts payable and
accrued liabilities 18,642,797 11,987,590
Income taxes payable 5,945,161 4,355,182
------------ ------------
Total current
liabilities 46,243,310 24,651,824
LONG-TERM LIABILITIES:
Long-term debt 51,334,329 58,640,201
Other long-term liabilities 8,407,731 1,412,087
------------ ------------
Total liabilities 105,985,370 84,704,112
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 606,837 606,326
Additional paid-in capital 14,678,517 14,921,406
Retained earnings 18,634,792 14,650,120
Net unrealized gain (loss)
on marketable securities,
net of tax 71,865 -
------------ ------------
Total stockholders'
equity 33,992,011 30,177,852
------------ ------------
Total liabilities and
stockholders' equity $139,977,381 $114,881,964
============ ============
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE BALANCE SHEETS
Page 3 of 20
<PAGE>
<TABLE>
<CAPTION>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
-----------------------------------
SEPT. 30, 1994 SEPT. 30, 1993
--------------- --------------
<S> <C> <C>
REVENUES:
Net sales $23,654,300 $11,562,185
Rental revenues from real estate
operations 5,474,211 5,275,751
----------- -----------
Total revenues 29,128,511 16,837,936
----------- -----------
COSTS AND EXPENSES:
Cost of sales 18,449,862 8,379,362
Real estate operations -
Mortgage interest expense 1,287,336 1,401,429
Depreciation expense 1,582,762 1,573,825
Other operating expenses 1,530,532 1,248,667
General and administrative expenses 2,288,206 2,212,176
Selling expenses 3,157,511 1,281,612
----------- -----------
Total costs and expenses 28,296,209 16,097,071
----------- -----------
Income from operations 832,302 740,865
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net of
dividend and interest income ( 289,923) ( 108,499)
Other income and expense, net 1,499,475 1,675,493
----------- -----------
Total other income (expense) 1,209,552 1,566,994
----------- -----------
Income before income taxes 2,041,854 2,307,859
Provision for income taxes 910,000 980,000
----------- -----------
Net Income $ 1,131,854 $ 1,327,859
=========== ===========
Earnings per share:
Net income per common share $.18 $.21
==== ====
Weighted average number of common
shares outstanding 6,170,971 6,235,465
========= =========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 4 of 20
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<TABLE>
<CAPTION>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
NINE MONTHS ENDED
----------------------------------
SEPT. 30, 1994 SEPT. 30, 1993
-------------- --------------
<S> <C> <C>
REVENUES:
Net sales $64,000,851 $36,525,685
Rental revenues from real estate
operations 16,544,981 15,339,079
----------- -----------
Total revenues 80,545,832 51,864,764
----------- -----------
COSTS AND EXPENSES:
Cost of sales 48,427,576 25,893,457
Real estate operations -
Mortgage interest expense 3,814,853 4,145,862
Depreciation expense 4,766,306 4,735,093
Other operating expenses 3,958,180 3,744,807
General and administrative expenses 6,572,138 6,522,992
Selling expenses 8,055,178 3,755,864
----------- -----------
Total costs and expenses 75,594,231 48,798,075
----------- -----------
Income from operations 4,951,601 3,066,689
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net of
dividend and interest income ( 750,874) ( 430,491)
Other income and expense, net 2,758,945 3,330,299
----------- -----------
Total other income (expense) 2,008,071 2,899,808
----------- -----------
Income before income taxes 6,959,672 5,966,497
Provision for income taxes 2,975,000 2,440,000
----------- -----------
Income before cumulative effect
of change in accounting principle 3,984,672 3,526,497
Cumulative effect of change in
accounting principle - 702,000
----------- -----------
Net Income $ 3,984,672 $ 4,228,497
=========== ===========
Earnings per share:
Income before cumulative effect
of change in accounting principle $.65 $.56
Cumulative effect of change in
accounting principle - .11
----------- -----------
Net income per common share $.65 $.67
========== ===========
Weighted average number of common
shares outstanding 6,174,946 6,278,981
========== ===========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 5 of 20
<PAGE>
<TABLE>
<CAPTION>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
(UNAUDITED)
1994 1993
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $3,984,672 $4,228,497
---------- ----------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 6,236,088 5,940,298
Cumulative effect of change in accounting
principle - ( 702,000)
Net realized and unrealized (gains)
losses on marketable securities (1,149,654) ( 743,636)
Changes in assets and liabilities, net
of effects from business acquisitions (A) (5,352,701) ( 926,486)
--------- ---------
Total adjustments ( 266,267) 3,568,176
--------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 3,718,405 7,796,673
---------- ----------
Cash Flows From Investing Activities:
Purchase of marketable securities ( 551,024) ( 247,876)
Proceeds from sale of marketable securities 2,722,840 -
Acquisition of property, plant and
equipment (4,282,822) ( 829,885)
Cash paid in acquisition of operating
business, net of cash acquired (2,673,000) -
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (4,784,006) (1,077,761)
---------- ----------
Cash Flows From Financing Activities:
Principal payments on mortgage
commitments, notes and loans (6,804,462) (6,335,055)
Net borrowings under lines of credit 6,184,890 1,635,000
Purchase of common shares ( 870,632) (1,881,173)
Proceeds from exercise of stock options 628,254 3,500
---------- ----------
NET CASH USED IN
FINANCING ACTIVITIES ( 861,950) (6,577,728)
---------- ----------
Net increase (decrease) in cash
and cash equivalents (1,927,551) 141,184
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 3,749,301 2,271,889
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,821,750 $2,413,073
========== ==========
</TABLE>
Page 6 of 20
<PAGE>
<TABLE>
<CAPTION>
UNITED CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993 (CONTINUED)
(UNAUDITED)
1994 1993
---------- ----------
<S> <C> <C>
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period For:
Interest $4,734,193 $4,896,303
Taxes 1,994,190 1,309,831
========== ==========
Supplemental Schedule of Noncash Investing
and Financing Activities:
See Notes to Consolidated Financial
Statements - "Business Acquisitions"
(A) Changes in assets and liabilities, net of effects from business
acquisitions, for the nine months ended September 30, 1994 and 1993
are as follows:
Increase in notes and
accounts receivable, net ($2,334,684) ($1,478,169)
Increase in inventories ( 1,740,455) ( 485,337)
Decrease (increase) in prepaid
expenses and other current assets ( 636,849) 385,290
Increase in deferred income taxes ( 628,570) ( 1,612,385)
Decrease (increase) in real property
held for rental, net ( 2,971,607) 433,661
Decrease in noncurrent notes
receivable ( 6,979,708) ( 73,646)
Decrease (increase) in other assets 1,103,342 ( 204,542)
Increase (decrease) in accounts payable
and accrued liabilities 250,207 ( 353,096)
Increase in income taxes payable 1,589,979 2,042,764
Increase in other
long-term liabilities 6,995,644 418,974
---------- ----------
Total ($5,352,701) ($ 926,486)
========== ==========
</TABLE>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE STATEMENTS
Page 7 of 20
<PAGE>
UNITED CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q used for quarterly
reports under Section 13 or 15(d) of the Securities Exchange Act of 1934, and
therefore, do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles.
The consolidated financial information included in this report has been
prepared in conformity with the accounting principles and methods of applying
those accounting principles, reflected in the consolidated financial statements
included in the Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1993.
All adjustments necessary for a fair statement of the results for the
interim periods presented have been recorded.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1993 the Registrant adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). In
prior years, the Registrant accounted for income taxes using Accounting
Principles Board Opinion No. 11. SFAS 109 requires recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based on the
difference between the tax basis of an asset or liability and its reported
amount in the consolidated financial statements using enacted tax rates. Future
tax benefits attributable to these differences are recognized to the extent that
realization of such benefits is more likely than not.
Under the provisions of SFAS 109, the Registrant has elected not to
restate prior years' consolidated financial statements. The cumulative effect of
this accounting change on years prior to 1993 resulted in a benefit of $702,000,
or $.11 per share which was recorded in the 1993 first quarter results.
The cumulative benefit recorded by the Registrant primarily arises from
basis differences of real properties held for rental for financial statement and
income tax purposes. Based upon the Registrant's historical and projected levels
of pre-tax income, management believes it is more likely than not that the
Registrant
Page 8 of 20
<PAGE>
will realize such benefits in the future and accordingly no valuation
reserve has been recorded.
The components of the net deferred tax asset (liability) at September 30,
1994 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Realization allowances related to
accounts receivable and inventories $ 433,199
Net unrealized (gain) loss on
marketable securities ( 37,021)
Basis differences relating to real
property held for rental 1,879,108
Accrued expenses, deductible when paid 1,496,393
Deferred revenue and profit (for
tax purposes) ( 247,422)
Basis differences relating to certain
investments obtained in the BMG merger (1,642,060)
Property, plant & equipment ( 199,685)
Pensions ( 199,465)
Other, net ( 21,358)
----------
Net deferred tax asset 1,461,689
Current portion 572,057
----------
Noncurrent portion $ 889,632
==========
</TABLE>
BUSINESS ACQUISITIONS
On March 14, 1994 the Registrant, through a new wholly-owned subsidiary
known as Kentile, Inc., purchased substantially all of the operating assets of
Kentile Floors, Inc. ("Kentile") for approximately $9.6 million. The purchase
price was comprised of approximately $6.5 million in new bank financing and
approximately $3.1 million in cash.
The $3.1 million cash payment included $775,000 that was advanced to
Kentile by the Registrant during 1993 and was also partially derived from a
total of $4 million in short-term borrowings by the Registrant during the first
quarter of 1994. The proceeds from this sale were used by Kentile to repay
amounts outstanding under its asset-based lending agreement, thereby relieving
the Registrant of its obligation under the letter of credit, discussed below.
In November 1992, Kentile filed for protection under Chapter 11 of the
United States Bankruptcy Code. Subsequent thereto, the Registrant acquired a
one-third equity interest in Kentile together with an option to purchase an
additional equity interest in the future. In consideration for this interest and
option in Kentile, the Registrant provided a $2 million letter of credit to
partially guarantee borrowings under Kentile's asset-based lending agreement.
The letter of credit arrangement was made pursuant to Bankruptcy Court approval
on a priority basis. In light of the uncertain
Page 9 of 20
<PAGE>
outcome of Kentile's bankruptcy proceedings, no value was assigned to the
equity interest acquired by the Registrant.
The acquisition has been accounted for under the purchase method of
accounting and, accordingly, the purchase price, including associated costs of
the acquisition, was allocated to assets acquired and liabilities assumed based
on their fair value at the date of acquisition as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current Assets $12,144
Current Liabilities ( 6,444)
Property, plant & equipment 1,883
Non-current assets 2,178
Long-term liabilities (154)
-------
Allocated purchase price $ 9,607
=======
</TABLE>
The results of operations of Kentile have been included in the
accompanying consolidated statements of income from the date of acquisition.
The following unaudited pro-forma consolidated results of operations of
the Registrant for the nine months ended September 30, 1994 and 1993, assume
that the acquisition of Kentile had occurred at the beginning of each period
presented. In addition to combining historical results of operations of the two
companies, the pro-forma calculations include adjustments to historical assets,
liabilities and results of operations which occur in a purchase.
<TABLE>
<CAPTION>
UNAUDITED PRO-FORMA RESULTS OF OPERATIONS
Nine Months Ended
September 30,
(In thousands except per
share amounts) 1994 1993
------- -------
<S> <C> <C>
Revenues $87,610 $90,412
======= =======
Net Income $ 3,103 $ 4,322
======= =======
Net Income Per Common
Share $ .50 $ .69
======= =======
</TABLE>
The above financial information is not necessarily indicative of the
actual results that would have occurred had the acquisition of Kentile been
consummated at the beginning of the periods presented or of future operations of
the combined companies.
In February 1994, in a separate transaction, the Registrant acquired the
underlying mortgage secured by Kentile's South Plainfield facility for
$2,250,000. This note has a face amount outstanding of approximately $6.5
million plus delinquent accrued interest. Due to the uncertainty of collection
of this note the Registrant has accounted for this mortgage as an in-substance
foreclosure and accordingly recorded the purchase price as
Page 10 of 20
<PAGE>
property, plant and equipment in the accompanying consolidated balance
sheet.
MARKETABLE SECURITIES
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). This standard requires,
among other things, that investments in debt and equity securities be classified
as either held-to-maturity, trading, or available for sale. Investments in debt
securities will be classified as held-to-maturity and measured at amortized cost
in the consolidated balance sheet only if the Registrant has the positive intent
and ability to hold those securities to maturity. Debt and equity securities
that are purchased and held principally for the purpose of selling in the near
term will be measured at fair value and classified as trading securities.
Unrealized gains and losses on trading securities will be included in current
earnings. All securities not classified as trading or held-to-maturity will be
classified as available for sale and measured at fair value. Unrealized gains
and losses on securities available for sale will be recorded net, as a separate
component of stockholders' equity until realized.
The Registrant adopted SFAS 115 effective January 1, 1994. The
application of this new principle has resulted in an increase in the
Registrant's stockholders' equity of approximately $72,000 on a net of tax basis
at September 30, 1994. This change in accounting principle is not expected to
have a material effect upon the consolidated financial results of the Registrant
given the current market value and cost basis of securities available for sale.
At September 30, 1994 and December 31, 1993 the aggregate market value of
marketable securities which are all available for sale exceeded their aggregate
cost by approximately $109,000 and $578,000, respectively.
CONTINGENCIES
The Registrant has undertaken the completion of environmental studies
and/or remedial action at Metex' two New Jersey facilities.
The process of remediation has begun at one facility pursuant to a plan
filed with the New Jersey Department of Environmental Protection and Energy
("NJDEPE"). Environmental experts engaged by the Registrant currently estimate
that under the most probable remediation scenario the remediation of this site
is anticipated to require initial expenditures of $860,000, including the cost
of capital equipment, and $86,000 in annual operating and maintenance costs over
a 15-year period.
Environmental studies at the second facility indicate that remediation
may be necessary. Based upon the facts presently available, environmental
experts have advised the Registrant that under the most probable remediation
scenario, the estimated cost to remediate this site is anticipated to require
$2.3 million in
Page 11 of 20
<PAGE>
initial costs, including capital equipment expenditures, and $258,000 in
annual operating and maintenance costs over a 10-year period. The Registrant may
revise such estimates in the future due to the uncertainty regarding the nature,
timing and extent of any remediation efforts that may be required at this site,
should an appropriate regulatory agency deem such efforts to be necessary.
The foregoing estimates may also be revised by the Registrant as new or
additional information in these matters becomes available or should the NJDEPE
or other regulatory agencies require additional or alternative remediation
efforts in the future. It is not currently possible to estimate the range or
amount of any such liability.
Although the Registrant believes that it is entitled to full defense and
indemnification with respect to environmental investigation and remediation
costs under its insurance policies, the Registrant's insurers have denied such
coverage. Accordingly, the Registrant has filed an action against certain
insurance carriers seeking defense and indemnification with respect to all prior
and future costs incurred in the investigation and remediation of these sites.
Upon the advice of counsel, the Registrant believes that based upon a present
understanding of the facts and the present state of the law in New Jersey, it is
probable that the Registrant will prevail in the pending litigation and thereby
access all or a very substantial portion of the insurance coverage it claims;
however, the ultimate outcome of litigation cannot be predicted.
As a result of the foregoing, the Registrant has not recorded a charge to
operations for the environmental remediation, noted above, in the consolidated
financial statements, as anticipated proceeds from insurance recoveries are
expected to offset such liabilities. Although the Registrant has reached a
settlement with two insurance carriers, it has not recognized any significant
recoveries to date.
In the opinion of management, these matters will be resolved favorably
and such amounts, if any, not recovered under the Registrant's insurance
policies will be paid gradually over a period of years and, accordingly, should
not have a material adverse effect upon the business, liquidity or financial
position of the Registrant. However, adverse decisions or events, particularly
as to the merits of the Registrant's factual and legal basis could cause the
Registrant to change it's estimate of liability with respect to such matters in
the future.
Effective January 1, 1994 the Registrant has adopted the provisions of
Staff Accounting Bulletin 92 by recording the expected liability associated with
remediation efforts as a component of other long-term liabilities and the
anticipated insurance recoveries as a component of noncurrent notes receivable
in the Registrant's consolidated financial statements.
The Registrant is involved in various other litigation and legal matters
which are being defended and handled in the ordinary course of its business.
None of these matters are expected to
Page 12 of 20
<PAGE>
result in a judgment having a material adverse effect on the Registrant's
consolidated financial position or results of operations.
COMMON STOCK
During the first nine months of 1994, the Registrant purchased and
retired 107,316 shares of its common stock at a cost of $870,632. In addition,
during this period 112,421 shares of the Registrant's common shares were issued
pursuant to the exercise of options under the Registrant's stock option plans.
During the same period in 1993, 291,604 shares of the Registrant's common stock
were purchased and retired at a cost of $1,881,173. Also, 700 shares of common
stock were issued pursuant to the exercise of options during the first nine
months of 1993.
AUTHORIZED CAPITAL
At the 1993 Annual Meeting of Stockholders, stockholders voted to amend
the Registrant's Certificate of Incorporation to reduce the authorized capital
of the Registrant to 7,500,000 shares of $.10 par value common stock.
EARNINGS PER SHARE
Earnings per share computations for each quarterly period presented are
based on the weighted average number of common shares and dilutive common
equivalent shares outstanding during the period. Fully diluted and primary
earnings per common share are the same amounts for each of the periods
presented. Earnings per share data is neither restated nor adjusted currently to
obtain quarterly amounts which equal the amount computed for the year-to-date.
RECLASSIFICATIONS
Certain amounts have been reclassified in the prior year consolidated
financial statements to present them on a basis consistent with the current
year.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
Revenues for the nine-month period ended September 30, 1994 were
$80,546,000, a $28,681,000 increase from comparable 1993 revenues. Net income
for the period was $3,985,000 or $.65 per share as compared to net income of
$4,228,000 or $.67 per share for the same period in 1993. Earnings before
cumulative effect of change in accounting principle for the first nine months of
1994 were $.65 per share as compared to $.56 per share for the same period in
1993.
Page 13 of 20
<PAGE>
Revenues for the three-month period ended September 30, 1994 were
$29,129,000, an increase of $12,291,000 from revenues in the comparable 1993
period. Net income for the third quarter of 1994 was $1,132,000 or $.18 per
share as compared to $1,328,000 or $.21 per share during the comparable 1993
period.
REAL ESTATE OPERATIONS
Rental revenues from real estate operations increased $198,000 and
$1,206,000, respectively for the three- and nine-month periods ended September
30, 1994, as compared to such revenues in the comparable periods of 1993. These
increases are primarily the result of additional revenues generated from the
renewal of existing leases at higher rents and from the operations of two hotel
properties.
Mortgage interest expense decreased $114,000 during the current quarter
and $331,000 during the nine-month period ended September 30, 1994, versus such
expense of the corresponding periods in 1993. These decreases of approximately
8% each, are due to continuing mortgage amortization resulting from the
repayment of approximately $5 million in mortgage indebtedness during the last
12 months.
Depreciation expense associated with rental properties was virtually
unchanged during the three- and nine-month periods ended September 30, 1994, as
compared to such costs during the corresponding periods of 1993.
Operating expenses associated with the management of real estate
properties increased approximately $213,000 or 6% for the nine-month period
ended September 30, 1994, versus the comparable period in 1993. During the
current quarter, such expenses increased approximately $282,000 or 22% from the
same period a year ago. The timing of certain maintenance costs in the current
and prior year periods as well as an increase in lease renewal costs incurred in
the current year account for these increases.
ANTENNA SYSTEMS
The Registrant's antenna systems segment includes Dorne & Margolin, Inc.
and D&M/Chu Technology, Inc.
The operating results of the antenna systems segment for the three and
nine month periods ended September 30, 1994 and 1993 are as follows:
Page 14 of 20
<PAGE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
(In thousands) 1994 1993 1994 1993
------- ------- ------- ------
<S> <C> <C> <C> <C>
Net Sales $4,395 $5,232 $15,468 $16,090
====== ====== ======= =======
Cost of Sales $3,426 $3,427 $11,381 $10,496
====== ====== ======= =======
Selling, General and
Administrative Expenses $1,366 $1,636 $ 3,996 $ 4,429
====== ====== ======= =======
Income (Loss) from
Operations ($ 397) $ 169 $ 91 $ 1,165
====== ====== ======= =======
</TABLE>
Net sales of the antenna systems segment decreased $837,000 or 16% during
the third quarter of 1994 and $622,000 or 4% for the nine-month period ended
September 30, 1994, versus such sales generated during the respective 1993
periods. Reductions in military and commercial sales continue to seriously
effect the Registrant's antenna systems segment. Several management changes have
recently been made, including naming Robert McInerney, President of the antenna
group, in an effort to expand the segment's product lines and reverse the
declining trend in revenues.
Cost of sales as a percentage of net sales increased from the prior year
by 12% and 9%, respectively for the three- and nine-month periods ended
September 30, 1994. These increases are the result of changes in the mix of
products sold, from incurring additional manufacturing costs of certain D&M/Chu
products that are now being manufactured at Dorne & Margolin and from additional
overhead incurred as the company moves to consolidate production of these two
facilities. This increase is not expected to continue in the future as
experience is gained in the production of these products and operations are
completely consolidated.
Selling, general and administrative ("SG&A") costs of the antenna systems
segment decreased by approximately $433,000 or approximately 10% during the
first nine months of 1994 as compared to such costs of the comparable 1993
period. SG&A costs during the current quarter decreased approximately $270,000
or 17% from that of the corresponding period in 1993. These decreases are the
result of administrative savings resulting from the consolidation of the Dorne &
Margolin and D&M/Chu operations and from previously implemented cost containment
measures.
ENGINEERED PRODUCTS
The Registrant's engineered products segment includes Metex Corporation
and AFP Transformers, Inc.
The operating results of the engineered products segment for the three
and nine month periods ended September 30, 1994 and 1993 are as follows:
Page 15 of 20
<PAGE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
(In thousands) 1994 1993 1994 1993
------- ------- ------- ------
<S> <C> <C> <C> <C>
Net Sales $9,281 $6,330 $26,532 $20,436
====== ====== ======= =======
Cost of Sales $7,126 $4,952 $20,005 $15,397
====== ====== ======= =======
Selling, General and
Administrative Expenses $1,536 $1,268 $ 4,260 $ 3,904
====== ====== ======= =======
Income from Operations $ 619 $ 110 $ 2,267 $ 1,135
====== ====== ======= =======
</TABLE>
Net sales of the engineered products segment increased $6,096,000 or 30%
and $2,951,000 or 47%, respectively, for the year-to-date and three-month
periods ended September 30, 1994, versus such results of the corresponding prior
year periods. These increases are the result of higher sales at Metex' Technical
Products Division and are offset by slightly lower sales generated by AFP
Transformers. Sales generated by Metex during these periods reflect substantial
increases in virtually all markets. Overall results of this segment, however,
continue to be negatively impacted by the results of the company's transformer
operations, which has incurred loses from operations of $316,000 and $636,000,
respectively, for the three and nine month periods ended September 30, 1994.
Cost of sales as a percentage of net sales was virtually unchanged in
each of the three- and nine-month periods ended September 30, 1994, as compared
to the respective periods in 1993.
Selling, general and administrative expenses of the engineered products
segment increased by $268,000 and $356,000, respectively, during the quarter and
year-to-date periods just ended versus such costs of the comparable 1993
periods. These increases are primarily the result of additional selling costs
associated with the increased sales volumes noted above.
RESILIENT VINYL FLOORING
The Registrant's resilient vinyl flooring segment, which is now known as
Kentile, Inc. ("Kentile"), was acquired on March 14, 1994 through the
acquisition of substantially all of the operating assets of Kentile Floors, Inc.
The operations of Kentile have been included here and in the accompanying
consolidated statements of income since the acquisition date, as outlined below.
Page 16 of 20
<PAGE>
<TABLE>
<CAPTION>
Three Months Nine Months
ENDED SEPT. 30, 1994 ENDED SEPT. 30,1994
-------------------- -------------------
<S> <C> <C>
Net Sales $9,979 $22,001
====== =======
Cost of Sales $7,898 $17,042
====== =======
Selling, General and
Administrative Expenses $2,067 $ 4,794
====== =======
Income from operations $ 14 $ 165
====== =======
</TABLE>
See Notes to Consolidated Financial Statements for a further explanation of the
acquisition and pro-forma financial information.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses not associated with the manufacturing
operations decreased by $113,000 for the three-month period ended September 30,
1994 versus that of the same period in 1993. On a year-to-date basis such costs
decreased $369,000 from the comparable 1993 period. These decreases in general
and administrative expenses are the result of lower salaries and professional
fees incurred in the current year periods.
OTHER INCOME AND EXPENSE
The components of other income and expense in the accompanying
consolidated statements of income for the three and nine month periods ended
September 30, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Sept. 30, Ended Sept. 30,
(In thousands) 1994 1993 1994 1993
-------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Gain on sales
of real estate
assets $ 316,218 $ 21,778 $1,390,638 $ 427,094
Net realized and
unrealized gains
(losses) on
marketable
securities 1,179,580 - 1,149,654 743,636
Income from
equity
investments - 103,715 42,353 571,069
Other - 1,550,000 176,300 1,588,500
---------- ---------- ---------- ----------
$1,499,475 $1,675,493 $2,758,945 $3,330,299
========== ========== ========== ==========
</TABLE>
Page 17 of 20
<PAGE>
Included in other in the above table for the three- and nine-month
periods ended September 30, 1993 is a settlement with Metex' insurance carrier
in connection with the class action civil suit brought by the former
shareholders of Metex. This settlement, in the amount of $2 million, is shown
net of approximately $450,000 of current year costs incurred in defense of this
suit. All defense costs year costs incurred prior to 1993 were included in
general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1994 the Registrant's current liabilities exceeded
current assets by approximately $4,358,000. The change in working capital since
December 31, 1993 has resulted from financing the purchase of long-term assets
utilizing short-term borrowings primarily in connection with the acquisition of
Kentile. Management is confident that through cash flow generated from
operations, the sale of select assets and the refinancing of certain current
liabilities on a long-term basis, all obligations will be satisfied as they come
due.
In addition, the Registrant has an unsecured line of credit with a bank
which provides for borrowings up to $7,000,000 at the bank's prime lending rate.
At September 30, 1994, $6,400,000 was outstanding under this facility. This
demand facility is reviewed by the bank annually on May 31.
On March 14, 1994, the Registrant, through a new wholly-owned subsidiary
known as Kentile, Inc., purchased substantially all of the operating assets of
Kentile for approximately $9.6 million, of which approximately $6.5 million
consists of new bank financing. See Notes to Consolidated Financial Statements.
The Registrant has undertaken the completion of environmental studies
and/or remedial action at Metex' two New Jersey facilities and has filed an
action against certain insurance carriers seeking recovery of costs incurred and
to be incurred in these matters. Based upon the advice of counsel, management
believes such recovery is probable and therefore should not have a material
effect on the liquidity or capital resources of the Registrant. See notes to
Consolidated Financial Statements.
The cash needs of the Registrant have been satisfied from funds generated
by current operations and additional borrowings. It is expected that future
operational cash needs will also be satisfied from ongoing operations and
additional borrowings. The primary source of capital to fund additional real
estate acquisitions will come from the sale, financing and refinancing of the
Registrant's properties and from the third party mortgages and purchase money
notes obtained in connection with specific acquisitions.
In addition to the acquisition of properties for consideration consisting
of cash and mortgage financing proceeds, the Registrant may acquire real
properties in exchange for the issuance of the Registrant's equity securities.
The Registrant may also finance acquisitions of other companies in the future
with borrowings from
Page 18 of 20
<PAGE>
institutional lenders and/or the public or private offerings of debt or
equity securities.
Funds of the Registrant in excess of that needed for working capital,
purchasing real estate and arranging financing for real estate acquisitions are
invested by the Registrant in corporate equity securities, corporate notes,
certificates of deposit and government securities.
BUSINESS TRENDS
Total revenues of the Registrant increased $28,681,000 or 55% on a
year-to-date basis and $12,291,000 or 73% for the third quarter of 1994 versus
such results of the comparable 1993 periods. Of these additional revenues
approximately $22 million and $10 million, respectively, were generated by
Kentile, Inc. during the nine-and three-month periods ended September 30, 1994.
Kentile was acquired by the Registrant in March 1994. The Registrant's real
estate and engineered products segments also contributed to the increased
revenues during the third quarter and year-to-date periods.
The improved results of the Registrant's real estate operations reflect
the renewal of existing leases at higher rents and improved results from the
Registrant's hotel properties. These results can be expected to continue in the
future as older leases are renewed at current market rates.
The Registrant's engineered products segment continues to reflect sales
growth in virtually all market segments. This has resulted in an increase of
$6,096,000 or 30% in revenues during the first nine months of 1994 versus
comparable 1993 results. During the third quarter of 1994 sales from this
segment increased $2,951,000 or 47% over those of the comparable 1993 period.
With continued increases in U.S. automobile demand and as more vehicles are
outfitted with air bags, demand for these products should continue. However,
this segment continues to be negatively impacted by the results of its
transformer operations.
Since the acquisition of Kentile in March of this year Kentile has
contributed approximately $22 million in sales on a year-to-date basis and
approximately $10 million during the third quarter. Income contributions from
Kentile have been marginal as many aspects of Kentile's transition are yet to be
completed.
The results of the Registrant's antenna systems segment reflect
substantially lower sales during the third quarter of this year as compared to
the comparable 1993 period. This segment experienced a $397,000 loss from
operations during the third quarter of this year. Several management changes
have recently been made, including naming Robert McInerney, President of this
segment. The business is focused on reversing the declining revenue and profit
trend and is seeking new markets and new applications for its products.
Although there can be no assurances as to how the events discussed above, or
other changes in the economy will impact the future
Page 19 of 20
<PAGE>
financial conditions or results of operations of the Registrant, management
continues to monitor these developments and has implemented measures to minimize
the possible negative effects they may have on these businesses.
PART II OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27.
(b) None.
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITED CAPITAL CORP.
------------------------------------
Registrant
DATE: November 10, 1994 /S/DENNIS S. ROSATELLI
------------------------------------
Dennis S. Rosatelli, Vice President, Chief
Financial Officer & Secretary of
the Registrant
Page 20 of 20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Company's Form 10-Q for the quarter ended September 30, 1994 and is qualified
in its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 1,822
<SECURITIES> 805
<RECEIVABLES> 22,281
<ALLOWANCES> 293
<INVENTORY> 15,364
<CURRENT-ASSETS> 41,886
<PP&E> 19,046
<DEPRECIATION> 5,121
<TOTAL-ASSETS> 139,977
<CURRENT-LIABILITIES> 46,243
<BONDS> 0
<COMMON> 607
0
0
<OTHER-SE> 33,385
<TOTAL-LIABILITY-AND-EQUITY> 139,977
<SALES> 64,001
<TOTAL-REVENUES> 80,546
<CGS> 48,428
<TOTAL-COSTS> 75,594
<OTHER-EXPENSES> (2,759)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 751
<INCOME-PRETAX> 6,960
<INCOME-TAX> 2,975
<INCOME-CONTINUING> 3,985
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,985
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
</TABLE>
